Kathmandu, June 15

Nepal’s over dependence on remittance as a single tool to strengthen foreign exchange reserves is an inherently risky strategy, as it is vulnerable to external shocks, according to the latest World Bank report.

The slowdown in Gulf economies due to rampant fall in oil prices and contraction in outflow of migrant workers from the country have taken a toll on inflow of remittance into the country for the past few months. This has posed a significant near-term risk to the Nepali economy, according to a World Bank report titled ‘Nepal Development Update 2016’ unveiled today.

The country may face similar challenges as that of fiscal 2010-2011, which were witnessed following the global economic recession of 2008-09 and directly hit remittance, states the biannual economic report. The country’s import growth had plunged to eight per cent in 2010-11 from 37 per cent in 2009-10, as foreign exchange earnings slumped.

“Slow growth of import hits government spending as the country is largely reliant on tax collection from import of goods,” adds the report.

Over the decade, remittances have increased substantially and they play an important role in Nepal’s economy.

The report has assumed that 10 per cent drop in remittances could hit the country’s growth by three percentage points compared to the baseline forecast. However, growth in remittances at a global level contracted in 2015 as a result of fall in oil prices, notes the report.

Economy to expand 4.7pc

KATHMANDU: In contrast to the government’s growth forecast of 6.5 per cent for next fiscal, the World Bank has projected that the country’s economy will rebound modestly, growing by 4.7 per cent in the same period. ‘Nepal Development Update 2016’ has said that this rebound in growth hinges on stabilisation of the political process, earnest reconstruction drive and the full normalisation of supply of goods. The country suffered devastating earthquakes in April and May 2015, followed by disruptions in supply lines from September-end to early February. The country witnessed lowest growth in 14 years and inflation peaked to seven-year high in fiscal 2015-16.